Don't Pay For Your Nose Job With Plastic

Paying for plastic surgery with plastic may seem fitting. But plunking down your credit card to pay for any major medical expense -- cosmetic or otherwise -- can leave your finances with some pretty ugly scars.

Plastic surgery demand has been growing at a rapid clip. Nearly 9.5 million procedures -- at a total cost of $10.7 billion -- were performed in 2010, according to the American Society for Aesthetic Plastic Surgery.

With cosmetic procedures up 155% since 1997, there's one entity that's feeling a lot prettier these days: banks.

Feeling Under the Weather? Just Call Dr. Plastic!

Those numbers have not gone unnoticed by financial services companies such as Citigroup (C), with its Citi Health Card, JPMorgan Chase (JPM) with its ChaseHealthAdvance line of credit, and even General Electric's (GE) GE Money division, offering a CareCredit card.

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Even if you're not considering plastic surgery, the rising rate of out-of-pocket expenses has many consumers tapping lines of credit to cover costs. The McKinsey consulting firm has estimated that out-of-pocket health-care expenses will surge from $45 billion in 2010 to $150 billion by 2015.

As the folks at LowCards.com have pointed out, these banks, challenged by recent reforms and regulations, are eager to find new ways to make more money -- and one lucrative group they've discovered are the patients of plastic surgeons, dentists, and even veterinarians.

The Problems with Patient-Tailored Credit

It can seem like a win-win scenario: Those facing big medical bills are able to borrow money and pay for their elective procedures via health-care cards and lines of credit, and the financial services companies make a little money.

But the upside is much bigger for the banks and health-care providers offering the lines of credit. Extending credit to pay for procedures can give doctors' businesses a big boost, providing potential patients a way to get treatment they otherwise couldn't afford. Plus, doctors get their money up front without having to chase down payments.

As for the patients, the terms of such credit offers can leave consumers with financial bruises that'll take longer to heal than the physical ones.

The credit offers tend to come with enticingly low interest rates, often of 0% for six months or more. But that rate then expires, leaving people owing much more in interest than they may have expected. GE's card's interest rate jumps to as much as 27% after the initial grace period, and according to a Wall Street Journal article, it also charges "retroactive" interest: "If you make late payments, you may be charged interest on the previous year's balance." That's a big deal, totaling up to $2,700 on a $10,000 balance. A $10,000 procedure could end up costing you almost twice as much if you're stuck with high rates and can't pay it off quickly enough.

The access to funds means many people are choosing to have surgeries that are medically unnecessary and that they otherwise would have forgone. That puts them in debt (or deeper debt) or uses up money that might have gone toward retirement or other more vital purposes.

Taking advantage of this credit can damage your credit score, which in turn can leave you facing steeper rates when you really need to borrow money, such as for a mortgage or car loan. That's because simply applying for credit goes on your record and too many credit applications can result in demerits. Worse still, you may be rejected -- and that's a costly black mark. (Hey, no one ever said the ways of the credit world made a lot of sense.)

The Complaint Box is Filling Up

It gets worse. Around the country, dissatisfied consumers are lodging complaints, and advocates and regulators are taking notice. Many borrowers claim to not have understood the terms of their deal, ending up surprised when their interest rate suddenly soared.

Another problem is that while happy medical providers get paid upfront, the work doesn't always get finished. The customer may stop the process, dissatisfied with the provider or his work, or the provider may go out of business. In such cases, customers have sometimes had trouble getting any or all of their money back. Some providers have even been signing up customers for health cards without their knowledge.

Among others, the attorney general of New York has been looking into troublesome practices of the health-care lending industry, while Minnesota's AG filed suit against two chiropractic clinics in 2009 over credit card signups.

If You're Going to Use Plastic, Do it with Care

But it's not necessarily all bad. Some procedures or expenses really are necessary, such as dental work or hearing aids that may not be covered by health insurance. And in some circumstances, charging can make sense. Just be sure to go about it prudently.

For starters, you may not need any special health-care card or line of credit. You may be able to charge it on a credit card you already have. If so, you may even be able to earn some rewards or cash back on it. Alternatively, you might just ask your provider if she will set up an extended payment plan for you.

Whether you use a special health-care card or your regular one, be sure to make your payments on time so your credit score isn't penalized. And be sure you fully understand your health-care provider's terms and the terms of the card or credit line you're using. If you've already used health-care credit, remember that you should be able to transfer it to a lower-interest rate card if or when that makes sense.

Finally, know that through your employer, you may be able to accumulate money for eligible health-care expenses in a Health Savings Account (HSA) or Flexible Spending Account (FSA). For some employers, Visa (V) and MasterCard (MA) offer cards that facilitate spending that money.

Longtime Motley Fool contributor Selena Maranjian owns shares of JPMorgan Chase, but she holds no other position in any company mentioned. See her holdings and a short bio here. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Visa.